Subprime Car Buyers Begin to Abandon New Vehicle Purchases
As new vehicle sales for subprime car buyers fall by 9%, more of these customers are deciding to buy used instead
Simply put, new vehicles have become too expensive for subprime buyers
Approximately a decade has passed since the financial crisis that helped fuel the Great Recession. Immediately following this economic downturn, financial lenders were willing to work with consumers with lower credit scores through subprime loans.
However, at the beginning of 2018, many of these subprime car buyers are beginning to vanish from dealership lots. In fact, new car deliveries for customers with subprime financial scores fell by 9% during the first two months of the year.
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Analysts believe two major factors are leading to subprime car buyers opting out of a new vehicle purchase. First of all, a general healthy and stable economy is resulting in rising interest rates, making it more difficult to obtain some of the same new vehicle financing deals that were commonplace just a few years ago.
The second factor discouraging customers with low credit scores from purchasing new is the rising prices for new vehicles. Simply put, the rising cost of a new vehicle model is just too high for shoppers with tight budgets.
More customers with lower credit scores are beginning to opt for used vehicle models
Instead of buying new, these customers are looking to purchase used models. They are in luck, as millions of lightly used vehicles are now coming off their leases, resulting in a healthy supply of quality pre-owned car models.
Customers who have not yet been priced out of purchasing a new car are spending more on vehicles than ever. Sales for vehicles priced $40,000 or more rose by 4% during the first two months of the year, while sales for vehicles listed at $20,000 or less fell by 19%.
Explaining the Difference: Used vs. Certified Pre-Owned
This demand for premium vehicles only increased during the month of March. Following the recent tax reform system, which largely benefited high-income earners, many motorists with the money to buy new vehicles spent more of that money on upgraded premium trims and models.
With affluent customers spending more on new models and subprime spenders choosing to purchase used vehicles, dealerships are experiencing something of a win-win situation, at least for the time being.
News Source: Bloomberg
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